How to buy 100+ units with on-site management?

8 Replies

Hello all, 

I'd like to grow my portfolio by larger chunks, but am unsure how on-site management is handeled. Right now, I own just under 90 units on multiple parcels, ranging from 8 units to 25 units per parcel and have 3rd party, off-site management. 

I want to buy a larger property (e.g., 1 parcel with 100+ units), but am unsure how it works when there is in-place, on-site management. From the apartments I recall living in, there’s usually a leasing office with a staff of 2-4+ employees. When purchased, do you inherit the staff or is the staff just a 3rd party management company with staffing on-site? If you do inherit the staff, who is in charge of managing the staff? 

In other words, how to do you scale and take advantage of in-place, on site management?

There are 3rd party management companies who specialize in apartment communities.  The on-site staff are management company employees but you pay for their salaries, plus a 4-5% management fee.  You will likely find on-site professional apartment management companies to be significantly better than the off-site management model.

I think that something to consider here is that value-add commercial MF plays are often attractive because of the room to increase NOI (and drive up FMV) due to poor in-place management. Even if the current management is mediocre, your management team may have other techniques to increase NOI and improve efficiency. There are no stead-fast rules in retaining current onsite management, and I'd even argue it's more common to replace them.

So, I'd look in to bringing your own property management team on board. There are plenty of articles out there on vetting property management groups; that being said, some crucial things to focus on are (1) how many units does the company manage in given market, (2) do they own any units in the market or just manage and (3) what property management software do they use - Excel or other non-industry specific software should raise concerns.

That is one of the primary reasons to get into 75+ deals is the ability to afford on site management.  As @Mike Dymski stated, the onsite office and maintenance employees work for the management company, but the property(you) pay their salaries and benefits.  This is on top of the 3-6% PM fee that you pay for their overseeing the management of your property.  There are also many other things that your PM company does such as bookkeeping, staff training, cap ex supervision, staff replacement if needed, additional staff if needed for special projects, liaison with the owner, etc.

That is one of the primary reasons to get into 75+ deals is the ability to afford on site management.  As @Mike Dymski stated, the onsite office and maintenance employees work for the management company, but the property(you) pay their salaries and benefits.  This is on top of the 3-6% PM fee that you pay for their overseeing the management of your property.  There are also many other things that your PM company does such as bookkeeping, staff training, cap ex supervision, staff replacement if needed, additional staff if needed for special projects, liaison with the owner, etc.

Tony, you can hear Rod Khleif's podcasts if you are interested in self managing, though I would still get a professional Property Mgt company for the first year or two if this is your first time managing a large complex.

 @Mike Dymski - That clears up a lot. So you’re saying the 4 employees in the leasing office work on-site for a 3rd party property management company who has their corporate office off-site. This would then mean they have a manager/boss who oversees their daily activities if I’m reading this correctly. Thank you for your input.

@Michael Bishop - I'm approaching this with worst-case scenario meaning I don't want to rely on my current property management team to be able to handle an additional 100 unit chunk at one time. I wanted to see what options exists when buying a large parcel and you don't have your own property management company. For example, if I buy in another market such as Austin, TX, I have zero contacts out there so I'd have to rely on worst-case scenario. From what you're saying, if I was to replace the current management, it seems like I would have to find a new off-site apartment community management company who can place employees on-site, right? Thanks for your advice, very valuable perspective on why replacing management is important to improve NOI.

@Jeff Greenberg - At a 3-6% PM fee, plus their salaries, are you typically seeing a 10% all-in cost for PM? Thank you for your input Jeff!

@Percy N. - Thank you for the info. I'm actually looking to hire 3rd party PM because I wouldn't have the capacity. In addition, it is because I'm aiming for on-site management instead of off-site. 

@Tony Nguyen

I agree with all of the advice here.  Going with a 3rd party is a great way to start--its a strategy we employ.  Couple of things to add: 

1) Make sure the management company you hire has a track record in your business model.  If you are buying value add deals with a big reposition for example, you want a company that has executed that strategy before.  There is a big difference between managing a stabilized Class A asset and a Class C asset undergoing a reposition and lease-up.  Find one that is an expert in your business plan. 

2) Your chosen management company will usually interview all of the existing employees on site that are interested in staying at the property.  The advantage is you'll have some people that are familiar with the property if they pass the interview screen.  For our most recent deal, we kept 3 of the existing employees, who now work for our management company. 

Good luck!

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